Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Can Anything Stop Polaris' Drive Forward?

Recreational vehicle and towables giant Polaris Industries (NYSE: PII  ) has been on an unstoppable tear for the past 12 months, even while the U.S. economy at large has limped forward. Big-ticket purchases continue to defy overall consumer spending trends, and Polaris' ever-expanding line -- which now includes a revival of the iconic Indian motorcycle brand -- is riding the demand wave all the way to the bank. The company issued another round of stellar earnings last week, and management raised its prospects for the current quarter and full year. While current investors love the ride, is there room for those who are just now catching on?

Uphill trek
By nearly every measure, Polaris Industries' business continues to grow at an impressive clip. The company released its fiscal-first-quarter results last week to a delighted Wall Street, as the numbers depicted a record quarter for the company.

Net sales grew just shy of 20% to $888.3 million (a record figure for the first quarter), while operating income gained 24%, and the bottom line trekked up 11.2% to $1.19 per share. Some analysts bemoaned the slowing profit growth, as the gain represented a slower pace than much of the company's past several years. Still, the number beat analyst estimates by an average of $0.03. Looking at each segment, investors really shouldn't fear for the company's growth prospects.

Motorcycle sales are up 52%, driven by the aforementioned Indian revival. Off-road vehicle (ATVs and the like) sales are up 11%, and the small vehicle segment grew an absurd 248% -- again a product of new additions to the lineup via the recent acquisition of Aixam.

Due to the strong sales figures and the promise of more product expansion throughout 2014, management raised full-year guidance to as much as $6.45 per share. The high-end estimate would represent a 19% EPS gain over 2013.

Why it makes cents
Polaris Industries is a uniquely diversified company set to continue growing substantially in the long run. From its burgeoning small vehicles segment to snowmobiles, and even apparel, the company's relevance in the various niches is tremendous. The name is known for quality across the board. The Indian motorcycle revival, in the author's opinion, isn't a game-changer for the company, but it certainly goes a long way in the marketing department. Competing head-on with Harley-Davidson  (NYSE: HOG  )  (a company that is also delivering fresh models at a rapid pace) in this department is a hard battle. Still, it was a telltale sign when Harley Davidson introduced its eight new models (dubbed Project Rushmore) a moment before the Indian relaunch. Clearly, Harley management wanted to downplay the story of another American heavyweight motorcycle brand coming into the picture. 

A UBS analyst recently reported that Indian dealerships are sourcing 80% of the brand's sales from former Harley-Davidson riders. In a way, the market is Harley's to lose, and Polaris' to seek. 

Of course, then there is the matter of valuation. At nearly 18 times forward earnings, investors are paying up for this growth stock. If the economy reverses fortune, or credit gets substantially tighter, big-ticket purchases could take a dive. For price-conscious investors, it's important to realize there is decent downside risk at these levels. Given that Polaris is such a diversified vehicle maker, it can be tough to find a direct comparison. Harley-Davidson, which is obviously a pure play on the motorcycle business, trades just shy of 16 times forward earnings. Arctic Cat, a major brand in the snowmobiling world, hasn't had the same success as Polaris in recent periods and guided for lower sales back in January, but it also trades at a much less expensive 12.4 times forward estimated earnings. Polaris' outlook suggests the stock premium is worth it, in this case. 

One could compare the business to the infinitely larger vehicle giant Honda, as the company does make a variety of off road vehicles that compete with Polaris. Honda trades at just nine times earnings, but is ultimately a tough comparison, considering it is one of the largest vehicle manufacturers in the world (at a $60 billion market cap) compared to Polaris. 

Nevertheless, Polaris is a well-run business with a growing market share in every part of its business. The company has a history of increasing its dividend and a phenomenal debt profile, to boot. For those willing to pay the premium, it's a great business to own.

The greatest thing Warren Buffett ever said
Warren Buffett has made billions through his investing and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.

Read/Post Comments (1) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2942015, ~/Articles/ArticleHandler.aspx, 8/30/2015 6:59:30 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Michael Lewis

Michael is a value-oriented investment analyst with a specific interest in retail and media businesses. Before coming to the Fool, Michael worked with private investment funds focusing on deep value and special situations. Currently living in the media capital of the world--Los Angeles, California.

Today's Market

updated 1 day ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:04 PM
PII $131.22 Up +1.11 +0.85%
Polaris Industries CAPS Rating: *****
HOG $56.64 Up +0.06 +0.11%
Harley-Davidson, I… CAPS Rating: ***